What Business Expenses is Tax Deductible
It would be impossible not to incur any expenses when you’re running a business. Whether you’re a contractor, consultant, or travel company, you will surely have to pay for certain expenditures.
In the case of a sole proprietorship business, deducted expenses can reduce the self employment tax and the income tax.
Incorporated businesses can also decrease the business taxes once the expenses are deducted. If you want to reduce tax liabilities, it is vital that you monitor all your business expenses.
You should be aware that expenses should be legitimate with regards to the business. Basically, business expenses are those that are necessary and ordinary for the profession or trade. If you want, you can read Publication 535 by IRS to better understand the classifications of expenses.
Section 162 of the IR code states that certain expenses of a business can be deductible, but not all can be deducted fully. Depending on the business that you’re running, you can fully deduct all accounting fees, bank charges, advertising, sales expenses, commissions, contract labor, collection or credit fees, subscriptions, delivery charges, benefit programs, rentals of equipment, insurance, factory expenses, interests, internet (hosting, domain names, subscriptions), laundry, licenses, legal fees, postage, repairs, maintenance, promotion, print/copy, training, rent, salaries, software, supplies, telephone, taxes, trade discounts, utilities, and travel.
You have to take note of the expenses that are partially deductible, so that you don’t make any assumptions. Among these expenses are gifts ($25 per employee), transportation or auto expenses, home office, entertainment, and meals. Gifts amounting to $4 are fully deductible but any amount higher than that is treated a different way. The expenses for transportation should be split between business and personal use. For entertainment and meals, you can deduct 50% of the actual amount.
To ensure that all deductibles are identified, you can consult a competent tax lawyer to help you in preparing your tax returns.
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